IBA Compliance Connection

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Our business customer sent a very large check (in the six figures) to one of their vendors, and the check was deposited, but their vendor says they did not receive it. We sent the bank of first deposit a presentment warranty letter asking for the money back. The bank of first deposit told us that it would take 30–90 days to research, and that they need an affidavit from the payee (our customer’s vendor) stating that they did not receive the check or deposit it. Are there any time limits regarding how long the bank of first deposit has to conduct its investigation, and are we required to provide them with the affidavit they requested?

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We do not believe the Illinois Uniform Commercial Code (Illinois UCC) or any other state or federal law specifies a deadline for a depository bank’s response to a claim for the breach of a presentment warranty.

Additionally, we are not aware of any requirement that your bank provide an affidavit when making your claim for the breach of a presentment warranty. The Illinois UCC does require your bank to send “notice of a claim for breach of warranty” within thirty days after you have reason to know of the breach and the warrantor’s identity, to avoid potentially reducing the warrantor’s liability to your bank, but this notice requirement does not require you to provide affidavits. However, cooperating with the depository bank may help to expedite the repayment process and avoid the need to pursue your warranty claim in court.

Note that your bank would have to file a lawsuit for the breach of a presentment warranty within three years after you had reason to know of the breach. (This limitations period is distinct from the requirements for providing notice to the warrantor discussed above.) Given that three-year limitations period, we recommend reviewing this matter and the depository bank’s potential defenses with bank counsel to determine the steps your bank is willing to take if you do not believe that the depository bank will be repaying your bank for the check.

For resources related to our guidance, please see:

  • Illinois UCC, 810 ILCS 5/3-417(a) and 810 ILCS 5/4-208(a), Presentment warranties (“If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that: (1) the warrantor is or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft; (2) the draft has not been altered; and (3) the warrantor has no knowledge that the signature of the purported drawer of the draft is unauthorized.”)
  • Illinois UCC, 810 ILCS 5/3-417(b) and 810 ILCS 5/4-208(b) (“A drawee making payment may recover from any warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft, breach of warranty is a defense to the obligation of the acceptor. If the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from any warrantor for breach of warranty the amounts stated in this subsection.”)
  • Illinois UCC, 810 ILCS 5/3-118(g) (“Unless governed by other law regarding claims for indemnity or contribution, an action . . . (ii) for breach of warranty, or (iii) to enforce an obligation, duty, or right arising under this Article and not governed by this Section must be commenced within 3 years after the cause of action accrues.”)
  • Illinois UCC, 810 ILCS 5/3-417(e) and 810 ILCS 5/4-208(e) (“The warranties stated in subsections (a) and (d) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the liability of the warrantor under subsection (b) or (d) is discharged to the extent of any loss caused by the delay in giving notice of the claim.”)